Higher costs, strong currency to dent Hyundai

Hyundai Motor Co., South Korea's top automaker, is expected to report a 21 per cent drop in quarterly profits on Thursday, pinched by a stronger won, higher steel prices and a sluggish local economy.

The current second-quarter outlook for Hyundai, which is aiming to be among the world's top five automakers by 2010, looks little better as the company is due for wage talks with its powerful 40,000-strong union. Big pay rises could dent profits.

After years of heavy spending to improve quality and image, exports are racing along, accounting for 80 per cent of sales in March, but a stronger won currency is eating into margins and profits on cars sold abroad.

The won is up 3.5 per cent against the dollar so far this year, on top of a hefty 15 per cent gain last year.

Hyundai is expected to earn net profit of 367 billion won ($367 million) in the 2005 first quarter, down from 463.2 billion a year ago, according to a Reuters survey of seven analysts.

But profit for the whole of this year is forecast to rise 12 per cent to 1.99 trillion won, and jump 23 per cent to 2.44 trillion won next year, according to 19 analysts surveyed by Reuters Estimates.

"(It appears) Hyundai keeps growing, with a surge in exports and demand for the new NF Sonata sedan also lifting local sales in March," said Cho Sang-yeol, an analyst with Daehan Investment and Securities.

"But Hyundai probably repeated last year's pattern of higher sales but lower profits because of pricey raw materials and a sharp rise in the won."

First-quarter turnover is expected to rise 6.5 per cent to 6.6 trillion won, with local sales falling 7.2 per cent to 119,200 vehicles but exports up 20 per cent to 285,000 units.

South Korea's top five carmakers saw combined sales fall almost 2.5 per cent in March, but analysts say a recovery in domestic sales should help brighten Hyundai's earnings outlook for the second half.